If you incur child care expenses because you are employed, carrying on a business, or attending school, you will normally be allowed to deduct some or maybe all of those expenses in computing your income.
The deduction for a taxation year is the lowest of the three following amounts:
- Your actual child care expenses for the year. This includes amounts paid for baby-sitting, nanny costs, and day care. A limited amount is allowed for boarding camps and schools, as discussed below.
- The total of the annual child-care limits for the year. These amounts are $8,000 for each child you have under age 7 at year-end, and $5,000 for each child you have that is 7 through 16. (The expenses aren’t limited for each child; this limit is a total, so if you spend $13,000 on your baby and nothing on your 12-year-old, the $13,000 can be deductible.) The annual child care limit is $11,000 for children who are disabled and eligible for the disability tax credit.
- Two-thirds of your earned income for the year, which includes your gross income from employment, your business income (after expenses) for the year, and your disability pension under the Canada Pension Plan or the Quebec Pension Plan.
For boarding camps and schools (for example, a summer overnight camp), the expenses for the purposes of item 1) above are limited to the following: $200 per week per child under the age of 7 at year-end; $125 per child age 7-16; and $275 per child eligible for the disability tax credit.
If you are married or in a common-law partner relationship, the lower income spouse (or partner) is normally the only one who can claim the deduction. Thus, for example, if the lower income spouse has no earned income (per #3 above), then no deduction will be allowed. If you are single, you can claim the entire deduction.
John and Isabel are married and have two healthy children, aged 5 and 12. They incurred $15,000 of child care expenses in the year. They also sent the 12-year to a summer camp for 3 weeks during the year, and spent $1,000 on that.
John is the lower income spouse. His earned income for the year is $30,000. His child care expense deduction will equal the lowest of:
- $15,000 actual child care expenses + ($125 x 3 summer camp weeks) = $15,375
- Total annual child care amounts of $8,000 + $5,000 = $13,000
- Two-thirds of John’s $30,000 earned income = $20,000.
John can deduct $13,000.
In certain cases, the higher income spouse (or partner) may claim a limited deduction in a taxation year. Basically, this occurs if the lower income spouse (or partner) is either is in school during the year; is physically or mentally infirm and incapable of caring for the children; or is in prison for at least two weeks in the year.